Businesses that fail or growing businesses that cannot sustain specific locations sometimes need to shutter their facilities. The timing of that decision may not necessarily align with the actual end of a commercial lease.
Leases for industrial facilities, retail storefronts and other commercial spaces often last for multiple years. Business tenants that do not remain at the property for the entirety of the lease could face collection efforts and lawsuits from landlords still owed months or years of rent payments.
If an initial lease allows for assignment, making arrangements with an outside party to assume the lease can be a way to protect a business from significant debts.
How lease assignment works
Lease assignment is effectively an arrangement where one party takes over a lease when the initial tenant must vacate the premises. Commercial leases sometimes include clauses addressing lease assignment.
Landlords might allow lease assignment in some cases. Other times, they might restrict lease assignment by specifically requiring that a business in the same industry take over the lease. They may require an opportunity to review and approve any potential new tenant contemplating lease assumption.
Other times, commercial leases may outright prohibit lease assignment, which can leave tenants in a difficult position. Even when a lease does not allow for assignment, landlords aware that tenants intend to leave the facility or dissolve their companies may work with individual tenants to facilitate a lease assignment arrangement or other mutually-beneficial compromise.
Reviewing the language of the original lease with a commercial real estate attorney can help business leaders determine what restrictions apply and what options may be available when ending a lease early. A lawyer can also help with difficult conversations with the landlord. Those hoping to end a lease early often need legal help to avoid mistakes that can prove costly, and that’s okay.